May 06, 2005

The Hydrocarbons Law

MABB © ®

The long awaited Hydrocarbons Law was finally approved by the Bolivian Congress on Thursday, May 6. Now the ball is in the government's court.

After long deliberations, debates and analyses, by both chambers in Congress, the lower chamber approved all changes made by the Senate without much debate, thus effectively creating a new law which is supposed to regulate the exploitation and production of natural gas in Bolivia.

The law, however, is said to be a time bomb, because it has as many opponents as supporters. Moreover, these supporters, are just half-supporters. The vote came down to a count of 59 in favor to 48 against. As it was to expect, the parties in favor were the traditional parties who, as of late, have lost legitimacy of representation around the country. Also as expected, the opponents of the law were the MAS and its followers.

A significant part of the disagreements concentrated on the inclusion of article 5. This article makes it obligatory for the companies with interests in this sector to "migrate" their contracts under the new rules. The main concern of the opponents was that by this action, the old contracts were implicitly legalized. Lately, there was an effort by supporters of nationalization to declare void all the contracts the Bolivian Government signed with the companies.

So, even though the new law, more or less does what the MAS and its supporters have been demanding, they aren't happy with the result.

On the other hand, the companies aren't happy either way they see it. They think, and they have said it already, that the new law as it is drafted is confiscatory.

Congress, however, is breathing again and relieved that the issue is off its hands, and back in the hands of the executive. Meanwhile, the president has said he will revise the law and make a decision to sign it or veto it. My thinking is that he will sign the law. He has said earlier that he wants Congress to draft a law for Bolivia and he will not stand on the way. He also doesn't want to be seen as trouble maker and even more, he doesn't want to be seen as going back on his word. However, he has made it known that he thinks the law is not what he had envisioned. Let's see, how long he'll keep us in suspense.

Additionally, the "social movements" (among them MAS) are preparing to start pressure actions to stop the new law from becoming legal.

Let's see, who does not like the newly approved Hydrocarbons Law.

1)The government is not happy with the 18% royalties 32% non-deductible taxes and the obligation to "migrate" contracts.

2)The private sector (business owners, including the Santa Cruz autonomic movement), wants President Mesa to veto the new law for being against investment.

3)Opponents (including congressmen from MAS, MIP and MIR) want the new law to be referred to a "national congress" to be debated there. They are against the obligation to "migrate" the contracts, because they think this will legalize the old contracts.

In the next few days we'll see Mesa making a tough decision. But, the thing is, no matter what he does, demonstrations, road blocking and strikes are already on their way. The question remains, whether Mesa will weather this new storm or he'll relent.